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LinkedIn Job Services Drive Sales And Earnings Growth

It's no coincidence that the financial fortunes ofLinkedIn
(LKND) began to turn around when the Great Recession hit and sent
millions of Americans onto the unemployment rolls.

LinkedIn operates an online professional network that lets
members create profiles, communicate with other professionals,
make contacts and put their names and resumes out there for job
recruiters and hiring managers.

The company makes some of its money selling services to
recruiters and employers who are on the lookout for job
candidates. This part of its business is called Talent Solutions.
It also sells premium advertising and premium subscriptions to
employers and members.

LinkedIn had 187 million members and 13,784 corporate
customers at the end of last quarter. Both of those figures have
more than doubled over the past couple of years. The company
announced today
that it surpassed the 200-million-member mark.

And LinkedIn's earnings and sales have reflected that growth.
Much of the recent financial momentum actually got its start a
few years ago, when the recession and financial crisis put
millions of people out of work.

Finding Work

Tools to help workers find jobs -- and recruiters find workers
-- were in great demand.

"All of a sudden, the labor market became as candidate-rich as
it had been in generations, especially among professionals," said
Randall Reece, an analyst at Avondale Partners. "There was a sea
change that happened with the Great Recession."

Before then, LinkedIn was primarily known as a social network
for professionals, a kind ofFacebook (
FB
) for the white-collar crowd. The company was founded in December
2002. Although it was able to grow its top line in its early
years, it had a hard time turning a profit.

"They were hoping there would be a magical union of
professionals who would collaborate, and that the network would
generate value the same way it has in other businesses," Reece
said. "But the social aspect of LinkedIn never really clicked a
lot because there wasn't much interest in that sort of
thing."

Over the past four years, however, LinkedIn has established
itself as the 800-pound gorilla in the online job recruitment and
placement business.

The company's sales have risen at least 81% the last two
reported quarters, following a run of seven straight quarters of
triple-digit gains. It has grown EPS in triple digits in three of
the last four quarters.

Analysts see no reason LinkedIn can't maintain its robust
financial growth over the next several quarters.

"LinkedIn is operating extremely well and has significant room
for growth ahead, driven by the secular shift toward enterprise
hiring, expanded field sales efforts and product innovation,"
JPMorgan analyst Doug Anmuth noted in a report on LinkedIn's
third-quarter earnings.

The company's success is partly due to a business model that
gives recruiters the ability to thoroughly research the
marketplace of job candidates -- even those who aren't actively
seeking a job. This feature is important because many recruiters
and hiring managers prefer job candidates who are already
employed rather than those who are out of work.

Most employment websites cater to active job-seekers, many of
whom are unemployed.

"LinkedIn is an acceptable place for you to cultivate and
maintain your professional identity," Reece said. "When you are
updating your LinkedIn profile, a lot of employers don't perceive
it as looking for a job. But if you're working on your (Monster
Worldwide (
MWW
) profile, you're probably in the market for a new job."

Another advantage LinkedIn has over most rivals is its size,
Reece says.

"There's really no competition in that area," he said. "A lot
of companies are trying to build something that would rival
LinkedIn's database in terms of size and quality, but they're
just not even close. For now, nobody is in LinkedIn's league in
terms of technology or technology investment."

These competitive advantages go a long way toward explaining
why LinkedIn has rung up such robust financial returns in recent
quarters.

The company logged earnings of 22 cents a share during its
2012 third quarter. That was up from 6 cents the prior year and
well above the 11 cents expected by Wall Street analysts.

"Talent Solutions and premium subscriptions drove much of the
upside, and we're also encouraged by the strong engagement around
new products," JPMorgan's Anmuth noted.

Redesigned Home Page

Those products include a redesigned home page and new services
designed to increase the number of times users share or promote
postings.

LinkedIn also has placed more emphasis on its mobile platform.
About 25% of users accessed the site via mobile devices during
the quarter, up from 13% the prior year.

"The last few months have been the most significant period of
product development in LinkedIn's history, driving greater user
engagement," Chief Executive Jeff Weiner said in a post-earnings
conference call with analysts.

The challenge for LinkedIn now is continuing to grow its
business as the unemployment rate declines and the job market
tightens up, analysts say.

"We're probably a couple of years away from the labor supply
and demand equation normalizing," Reece said. "But the company
will have to add more value for recruiters when that
happens."

One way the company is doing that, he says, is through its
recent efforts to increase traffic by getting members more
engaged in the site. He also says LinkedIn will have to be a
"serious player" in online recruitment advertising when job
candidates are in short supply.

The near-term outlook remains strong. Analysts polled by
Thomson Reuters expect LinkedIn to post a 50% EPS gain when it
reports earnings for the 2012 fourth quarter. They see full-year
profit rising 78% in 2013 and 67% in 2014.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

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